Educational Development Corporation
Q1 2019 Earnings Call Transcript

Published: 19 Jul 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Educational Development Corporation First Quarter 2019 Results Conference Call. [Operator Instructions] And as a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Randall White, CEO and President. Please go ahead, sir.

[Randall White:]

Thank you, Chris. This is Randall White. With us today are Dan O'Keefe, Heather Cobb, Craig White -- and so I think we'll just go and start with Dan to announce our earnings results. So, Dan could you take it over?

[Dan O'Keefe:]

Thanks, Randall. To announce our earnings, our net revenues grew $3,081,100, or 11% from $26,941,200 reported in the first quarter of fiscal 2018 to $30,022,300 reported in the first quarter of fiscal year '19. Earnings before income taxes grew approximately 514,000 or 26% from $1,982,200 in the first quarter of fiscal year 2018 to $2,495,800 in the first quarter of fiscal year 2019. Net earnings after taxes grew approximately 591,000 or 48% from 1.2 million to 1.8 million over the common first quarter periods. Earnings per share on a fully diluted basis increased $0.14 per share or 47% from $0.30 per share reported in the first quarter of fiscal 2018 to $0.44 per share reported in the first quarter of fiscal 2019. This concludes the earnings results for the quarter and I’ll pass the call back to Randall White, our CEO and President.

[Randall White:]

Okay, well, pretty glad to see that our double digit growth has continued. I think this is the third consecutive quarter, and during this quarter we maintained a consistent level of active consultants which is just around 35,000. The sales efforts of these active consultants really drive the success of the division. You might note that that the consultants are up 26%, the revenue up 12%. Heather, do you want to make a comment on that? It’s a common trade in the industry but I thought Heather Cobb who is our Vice President in that division might add a little bit.

[Heather Cobb:]

Sure. We were happy to see the growth in sales, especially with the growth in the number of new consultants that we have. But as Randall alluded to, it is pretty much following the same trend in the industry which is seeing a slight decrease in the average order size and through the direct selling model. And so while that is not necessarily something that we track and are able to speculate on moving forward, we did have access to information to show that we were in line with those industry trends.

[Randall White:]

So, overall being up 11% of course is a key number, and the number of active consultants, that’s a good number but actually sales results we think is the most important. But I am really happy to see that our publishing and retail division has reported its first revenue growth in over a year. Publishing sales were up 9% over the first quarter last year and that's primarily due to the increase in order volumes with a smaller retail and toy and gift store accounts. However I might add, Heather and I recently -- it's about two weeks ago we were in New York, visited Barnes & Noble which has been our largest customer, probably still is. We were very encouraged with our reception there and we’re very happy with our reception there, better leave it at that. So, we think that we can see publishing division return to historic growth levels. I am contacting some of the major accounts myself and trying to see if we can increase the volume in that division. We want growth in all divisions. In addition to our revenue growth in the first quarter we continue to make operational improvements to increase our bottom line. Our pretax profits grew 26%, and thanks to the new tax laws, our earnings per share increased further by 47%, these increase in operational improvements really date back to -- from the day we moved in the building and it’s a constant update. We recently completed an update of our Line 3 which is our smaller line, more for internet orders. It has about 500 or top best sellers, so that order will be faster. And we’ve just completed another update to that, to make it even more efficient, and reduce the labor involved in processing order because they are small. Our pretax profits continue to grow faster than our revenues, it’s again -- we are identifying and implementing operational improvements for reducing our costs, as Line 3, I mentioned. It also is reducing the cost per package to ship, less overhead and in our office staff. So we expect these benefits to continue through the next several quarters. So I think you can expect us to improve profits maybe more than sales increase. So we're thinking about that, because we got lot of invested -- couple of years we missed about 5 million from 2016 when we had a struggle processing the revenue that we had in hand. So it's all falling in place and we're seeing the benefits of the technology and operational improvements. So that's basically what I have. Welcome to answer any questions.

[Operator:]

[Operator Instructions] And our first question comes from Paul Carter from Adaptable Capital Management. Your line is now open.

[Paul Carter:]

So first of all, how do the national convention go and what's the impact has been sort of post convention in terms of sales and recruiting momentum? I know you don't give any guidance but is there anything you can say about how like June and July are going relative to last year?

[Randall White:]

The national convention went very well, the largest one ever. And that's always good indication because you do realize they pay all the cost themselves attend unless they earn it in some type of context. And so they have 25% increase in attendance, it was encouraging. And sales and recruiting beginning to do well. We just had a -- we took all of our 100 of our top sales people that earned it in the 5-day trip to Punta Cana. And I can tell you the enthusiasm is high there and the significance of that is, it's your top business builders generally and so that's who you want to be motivated, because they are the ones that are significantly building the business. So we're definitely upbeat about what the rest of the year looks like in recruiting and sales fall.

[Paul Carter:]

Okay, great. And then regarding your announcement last month, that you are going to publish Spanish language titles. Do you have like a numerical expectation of how much that might possibly impact either your sale or your recruiting process next year?

[Randall White:]

I would say that was the most exciting thing on the trip this week, for the people, they are just overwhelmed by it, because we have access to 1,000 titles and the 1,000 we have access to are the ones that we have the same book in English. So now you can have bilingual product so to speak, not all in the same book but you can of course have English and Spanish books either side. We will come out probably with around 200 or less, maybe somewhere between 100 to 200 -- don’t write this down guys. We're in the process of translating -- not translating but getting them ready for January. So we're going to try and make as big as splash as possible because it's a key factor. Now the downside of that is we'll have to spend some money to develop material in Spanish, even videos and printed material, because we now expect that we can recruit Spanish speaking consultants. But, that wasn’t the goal. The goal was to get into these emerging programs which are really big across the country and book fairs and the people again this week, this past week, we’re -- that was one of the things that I'm most excited about. So I've been waiting on this for years. Okay, well here it is. So, how numerically, I don't know because we never sold any of them. But there was a very-very good reception to announcement, Paul.

[Paul Carter:]

And then just finally -- so last year you added just over 32,000 new sales reps during the year or like 2,500 to 2,700 per month on average. So, to get to your goal of 50,000 by February that you mentioned last call, do you figure you’re going to have to add recruits at a significantly faster rate than that? Or are your consultants staying active for longer simply because they're happier now than they were a year or two ago?

[Randall White:]

Heather, do you want to address that one?

[Heather Cobb:]

Sure, I can, and that’s a great question Paul, actually we are seeing, that they are staying active longer. I think that the numbers that me and Randall mentioned earlier are going to be evident with that. They are happier, and they have what they feel like is a little bit more opportunity. The family feel of the business continues to evolve and help them succeed. The level of training that is offered, not only with our core library program, but as we get to a point that we will be rolling out a full fledged trainings for those new consultants. We think that that will improve even more than what we’re seeing now. So I think it’ll be a little bit of a combination of the two but we’re definitely seeing people maintain that active status for a longer time period.

[Randall White:]

I think and part of that too is the fact that -- it’s taken us quite a while to overcome 2016 because I see people posting on Facebook and say, how is that shipping, I haven’t ordered in a while. I'm like, my gosh that's two year ago guys, girls. But we see consultants coming back that they see that the problems have been fixed and we’re shipping quickly now. A lady actually told me we're shipping faster than Amazon, but I don’t know. I haven’t ordered from Amazon, so wouldn’t know about that. But some great stories about people coming back and retention a little bit longer. So we think that we’ll -- we’re trying to hit that goal and it can be done by more recruits and then the ones doing we have are with better retention.

[Paul Carter:]

Okay great. Well, that’s it for me. Thank you very much.

[Randall White:]

All right. Thanks Paul.

[Operator:]

[Operator Instructions] I am not showing any further questions. Pardon me, we do have a question from the line of [Edward Norsini], Private Investor. Your line is now open.

[Unidentified Analyst:]

I have a question about your inventory, last year they were at 34 million and this year again in the fiscal 2018 they're down to 27 million. I would think that the company is growing as fast as you are, your inventories would be more, you would have more books on hand. Can you explain why they are down about 8 million. Can you hear me?

[Randall White:]

Yes, I hear you, that's a good question and a very easy answer. The inventory got to that level because in 2016 we had orders and we had the business to ship a 150 million and the inventory was just to support that level, but overwhelmed as operationally we couldn’t get it out the door. It was taking three to four weeks to ship and order, so consequently at year-end we had inventory and we had the business thought that we couldn’t ship it. And that's what happened in the fourth quarter last year when it showed revenue of higher than it was because 9 million as of November 30th, not last November, the year ago, we couldn’t get it out the door. So it feel in the fourth quarter, but it really occurred in the third quarter. So the inventory was built to a level of the volume of orders we were getting, couldn’t ship them so the volume was down of course. And what we have done is just work through the inventory to get it back to a level that we are comfortable with on the volume today and we'll build it as we need to as we grow, but that is a good question. It happened absolutely on purpose to get us back to the correct inventory level.

[Unidentified Analyst:]

Okay, that's all I have Randall. Thanks.

[Randall White:]

Okay. Can't help the cash flow too when you cut your inventory down to 6 million or where it was to 12 million. That held cash flow, it helped to reduce our line of credit at some point this year zero, from a high of that 8 million or 9 million -- obviously the high. So these are all part of the improvements that we see here, that's why in my press release I put out it's the best year we've ever had, starting to believe that. The earnings were up considerably, sales were up. We now have three quarters in a row of double-digit sales growth and we think we can improve that. So is that it for everybody by having questions?

[Operator:]

I'm not showing any further questions. I would now like to turn the call back over to Mr. Randall White, CEO and President for any further remarks.

[Randall White:]

Well, that was me and I think I gave them to you. But we are very upbeat here, as you can see our stocks made nice little improvement in 2 to 3 days from what I was keeping it down and I think we are starting to see a little bit more of shareholder confidence in case of the share price. So we hope that continues too, and no more questions, we'll just call it a day and thanks for attending guys.

[Dan O'Keefe:]

Thank you everyone.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect and everyone have a great day.